Cash Flow and the Full Investment Stack
Investment property analysis requires a layered approach. Start with Gross Rental Income (GRI) — the maximum rent if fully occupied. Subtract Vacancy and Credit Loss (typically 5–10% of GRI) to get Effective Gross Income (EGI). Subtract all Operating Expenses (property taxes, insurance, maintenance, property management fees typically 8–12% of rent, HOA, landscaping, utilities paid by owner) to get Net Operating Income (NOI). NOI is pre-financing — it measures the property's earning power independent of how it's financed. From NOI, subtract Debt Service (annual mortgage P&I payments) to get pre-tax Cash Flow. Cash flow is the money left over after every expense including the mortgage. Positive cash flow means the property puts money in your pocket each month; negative cash flow means you supplement it from your salary. A quick example: GRI = $24,000, vacancy = $1,200, operating expenses = $8,400 → NOI = $14,400. Annual debt service = $11,200 → Cash Flow = $3,200/year ($267/month). Always analyze using conservative vacancy assumptions — markets turn, tenants leave, and units sit empty. Underestimating vacancy is one of the most common mistakes new investors make.